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The New York Times reports that a growing number of philanthropists such as George Soros, Mayor Michael R. Bloomberg of New York, Warren E. Buffett, Jeff Skoll, and Bill Gates, and the foundations they endorse are spending increasing amounts and raising their voices to influence public policy, which is a marked shift from their traditional, behind the scenes position.

The article discusses the Peter G. Peterson Foundation's efforts to address taxes, deficits, and fiscal responsibility. Established in 2007 by Peter G. Peterson, a Wall Street billionaire and former commerce secretary during the Nixon administration, the foundation financed a documentary examining the United States' addiction to debt titled "I.O.U.S.A." In addition to the documentary, the Foundation is using advertising and public appearances by foundation experts to educate the public and increase engagement in those issues. Its Website offers op-ed articles and letters to public officials and editors, some of which have appeared in newspapers. Also, all members of Congress received a copy of a report by the foundation, “The State of the Union’s Finances,” and Mr. Peterson and David M. Walker, the foundation’s chief executive, have met with members of both parties to discuss the nation’s deficit.

Joel L. Fleishman, author of The Foundation: A Great American Secret, cited three reasons for foundations’ interest in influencing public policy: (1) greater ambition to tackle big and seemingly intractable problems, (2) growing frustration over government gridlock caused by partisanship and, (3) an increasing number of foundations that plan to spend down their assets by a specific date, making them eager to make a mark upon the world.

“Many foundation donors and trustees are just avid about the issues they care about and willing to push limits as far as they can to get things done,” Mr. Fleishman said. “They’re frustrated and want to show they have an impact.”

Another example the article discusses is the Gates Foundation, which spends roughly 10% of the more than $1 billion it gives away each year on advocacy efforts like increasing public awareness of issues; helping nonprofits reach policy makers and the public; and working with policy makers to provide information, expertise and ideas.

Patty Stonesifer, the Gates Foundation’s former chief executive, said the problems that the foundation was seeking to conquer — H.I.V./AIDS, malnutrition, the failings of public education — were so enormous that success required involving government.

Ms. Stonesifer cautioned, however, that it was difficult to link changes in public policy to a foundation’s investments in advocacy. The Gates Foundation is often credited with helping increase government aid to combat AIDS internationally, but, Ms. Stonesifer said, “you don’t really know what did cause it to rise, though we do feel like we were part of the range of voices and provided some of the evidence that led to it.”

The Chronicle of Philanthropy predicts that the new administration and Congress will bring both greater incentives for giving by the rich and continuing scrutiny of charity finances and activities. The greater incentives will come in the form of the Obama-promised tax increases for the rich - those earning more than $250,000 annually - that will strengthen the incentives for making deductible charitable contributions. The timing for those increases is uncertain, however, as Roberton Williams of the Urban Institute and Brookings is cited in the article as predicting that the new administration will hold off on them until the economy improves.

At the same time, the budget pressures on the federal government will lead Congress to continue to scrutinize the significant tax benefits enjoyed by charities. The article reports that Senators Max Baucus and Charles Grassley, Chairman and Ranking Member of the Senate Finance Committee, respectively, plan to review a variety of charity-related issues. They expect to not only continue examining issues they have raised in the past, such as the accumulation of endowments by charities, but also to hold hearings in early 2009 on all of the tax laws relating to charities. I also expect that the budget pressures faced by many state and local
jurisdictions will have them conducting similar reviews,
particularly in places with new elected officials who may feel they
have a mandate to take dramatic steps to relieve these pressures.

It may also be that nonprofits, like many parts of the for-profit sector, will be coming to Washington looking for financial help to weather the declining donations and increased demand for services resulting from the current economic troubles. Professor Paul Light raised this point during a recent panel at the Urban Institute, according to another Chronicle of Philanthropy article. While President-Elect Obama promised to provide some support for the nonprofit sector, as we blogged about earlier this week, it is far from clear how much help will actually be forthcoming given the hard choices Congress and the new administration will face in the coming months.

The Chronicle of Philanthropy reports that most ballot initiatives that would have hurt nonprofits by reducing funding for state and local governments failed to pass. It cites defeats in both Massachusetts and North Dakota for measures that would have eliminated or sharply reduced state income taxes, as well as a measure in Oregon that would have allowed residents to deduct federal taxes from their state income-tax returns. Oregon passed, however, a measure that bars automatic payroll deductions for government employees. While apparently aimed at labor unions, the measure may also prevent automatic payroll deduction payments to charities such as through United Way type campaigns. Finally, the article details that in Minnesota voters approved a sales tax increase that will be used for environmental, arts, and cultural heritage purposes.

The St. Louis Post-Dispatch reports Bishop Robert Hermann, head of the Archdiocese of St. Louis, is in a growing power struggle with the board of the Archdiocese's arm of Catholic Charities. While the Archdiocese characterizes the dispute as merely being over attempts to coordinate fundraising, at least one Catholic Charities board member claims that it is really an attempt to take control of the charity, which is the largest private provider of social services in Missouri. An October 30th memo from Bishop Hermann to the board characterized the current relationship as "at an impasse" and stated the Bishop wanted to combine the two organization's development offices. The dispute has apparently led several Catholic Charities board members to resign. The Bishop has the sole authority to appoint members of the charity's board and holds other reserve powers, which appears to make the result of any power struggle over the $80 million annual budget organization a foregone conclusion.

This
essay examines Google's adoption of the novel and unorthodox for-profit
philanthropy model. Google created a division of its for-profit company
that is tasked with pursuing philanthropic activities. Specifically,
this division is responsible for addressing the global issues of
climate change, poverty, and emerging diseases. Of course, companies
have long blended philanthropic and business objectives. They make
contributions, commit to corporate social responsibility, or even form
as social enterprises. For-profit philanthropy, though, differs from
these familiar techniques in both structure and scale. Likewise,
for-profit philanthropy stands in stark contrast to the nonprofit,
tax-exempt form of organization typically used by those pursuing
exclusively philanthropic endeavors. This essay investigates the
for-profit philanthropy model, drawing out these distinctions as well
as the reasons why Google chose to adopt it. These reasons reveal a
fascinating mismatch between Google's philanthropic vision and that of nonprofit
law. Exploring this divergence exposes the fundamental policy choices
underlying the law's structures for philanthropic activity, as well as
the undertheorized boundary between nonprofits and for-profits.

This paper asks how hospital ownership - nonprofit,
for-profit, or government - affects medical service provision in the
rural context. Here we consider two distinct ownership effects: 1) the
direct effect of hospital ownership and 2) the spillover effect of the
market mix of hospital types on a hospital's service offerings. We find
that ownership matters a great deal in the rural context. Nonprofit
are more likely than for-profit hospitals to offer unprofitable
services, many of which have previously been found to be in short
supply in rural areas. Nonprofits also respond less than for-profits to
a change in profitability of services. Moreover, nonprofit
hospitals with more for-profit competitors act more like for-profits
than other nonprofits, perhaps because they must make up for lost
revenue due to cream-skimming by for-profit hospitals or because the
characteristics of those markets favor that type of behavior.

As we blogged earlier this week, as well as with respect to churches and charities generally last week, there have been numerous recent reports of charities bracing for reduced contributions even as demand for services increases. Many charities are also seeing reduced investment income because of shrinking endowments, as we reported this week and last week. Additional recent examples of these concerns include the William and Flora Hewlett Foundation's announcement of "a sharp decline in assets" that will constrain its near future grantmaking and the Urban Institute's forum focusing on both the election and the economy and asking "What's Ahead for Civil Society?"

The Washington Post has published a Reuters report that indicates there is at least one (partial) bright spot, however. Sources at three of the largest corporate foundations - those for Wells Fargo, Bank of America, and General Electric - report that they plan to at least hold their 2009 giving steady even in the face of the current economic turmoil. And there is even better news - two other large corporate foundations, those for Wal-Mart and Exxon Mobil, plan to increase their 2009 charitable giving. While these increases may not match the increased demand these same foundations are seeing, it is at least one somewhat brighter spot for charity finances in the next year.

We previously blogged that the Council on American-Islamic Relations (CAIR) had filed a complaint with the Federal Elections Commission against a charity that distributed a DVD titled "Obsession: Radical Islam's War Against the West." CAIR alleges that the multi-million copy distribution was intended to support Senator McCain's campaign, in violation of federal election laws. Perhaps not surprisingly, CAIR has also announced that it filed a similar complaint with the IRS. The DVD's distributor was the Clarion Fund, which describes itself as "a non-profit, non-partisan organization whose mission is to educate Americans about issues of national security."

In my last post on this case I inadvertently linked to an old New York Times story and therefore provided readers with some dated information. The most recent information about the case, which we previously blogged about, is that the planned January 2009 trial will be split into two phases according to a Times of Trenton report. The first phase will determine whether the university is liable for the plaintiff's claims and, if so, the second phase will determine the appropriate remedy, whether monetary damages and/or equitable relief. The article also reports that settlement talks are ongoing, but it is far from clear that the parties will reach any type of agreement before the trial start date of January 20th. For more information about the case, see Princeton University's detailed website about the case, including the current status and copies of the court's various rulings to date.

Now that (most) of the election results are in, it is an appropriate time to consider how an Obama presidency might affect nonprofits. Perhaps one of the most prominent aspects of the Bush presidency with respect to nonprofits has been the current Administration's efforts to expand government funding available for religious organizations, spearheaded by the White House office of Faith-Based and Community Initiatives, although some criticized whether those efforts were more symbolic than substantive. According to President-Elect Obama's campaign website, he plans to have a similar although somewhat differently focused effort. As part of his Administration's service initiative, President Obama states he will create a "Social Investment Fund Network" that will "use federal seed money to leverage private sector funding." He also promises to create a new agency within the existing Corporation for National And Community Service (home of AmeriCorps, Senior Corps, and other service-promoting programs) which would be "dedicated to building the capacity and effectiveness of the nonprofit sector." Whether these promises turn into significant efforts, particularly in the tight-budget environment the federal government will face for at least the next couple of years, we will have to wait to see, although perhaps some hope can be found in the fact that Senator Obama has perhaps a greater degree of familiarity with nonprofits from his community organizing and other past efforts than the typical new President.

It seems only a little while ago that there were numerous calls for colleges and universities to spend more from their endowments on current activities. Now the newspapers are full of stories involving many of those same colleges and universities facing shrinking endowments and tough budget choices as a result. For example, the Kansas City Star reports that foundation supporting the Metropolitan Community College in Kansas City has seen its investments drop by half-a-million dollars, resulting in a decrease of $20,000 to $30,000 in scholarships it can offer to low-income students. The article also states that Kansas State University has seen a 11.5 percent drop in its endowment, which apparently is held by a separate foundation and includes hundreds of millions of investments. And it is not just smaller endowments that are hurting. The Fort-Worth Star Telegram published an AP report last weekend stating that the University of Texas at Austin's endowment is down almost $1 billion from its $7 billion level at the start of this year, a nearly 13 percent drop. Even Harvard University, while not repeating a decline in its $36.9 billion endowment (as of the June 2008) is reportedly looking to rebalance its portfolio by selling some of its private-equity holdings.

The Globe and Mail and the Toronto Star both report that the Canada Revenue Agency has revoked the charitable status of an organization that allegedly issued inflated receipts for hundreds of millions of dollars in donated pharmaceuticals. According to the Agency, donors to the Choson Kallah Fund would buy the drugs overseas at low prices and then receive receipts from the Fund that valued the drugs at their Canadian retail value. The Fund would then turn the drugs over to another charity, the Escarpment Biosphere Foundation, apparently sight unseen. The Fund kept about 1 percent of the total value donated as a fee. The Foundation in turn claims that the it distributed the drugs in 43 countries with the help of a third charity. The donors to the Fund were apparently recruited by a company called either World Health Initiatives Inc. or the Canadian Humanitarian Trust, which appears to have been at least initially the driving force behind the scheme.

Choson Kallah is run by Rabbi Eli Gross and until 2004 was a medium-sized charity with approximately $6 million (Canadian) in total revenues that it donated primarily to various Jewish organizations. Over the next three years, however, it collected more than $300 million in donations according to its records, primarily the pharmaceuticals involved in the alleged inflated receipts scheme. The Escarpment Biosphere Foundation similarly saw its revenues shoot up from only $74,000 in 2002 to $78 million, almost all because of the drugs transfered to it by Choson Kallah. For more details of the Canadian government's allegations, see its news release. Choson Kallah is appealing the revocation.

Numerous nonprofits will spend today tracking possible problems at the polls and providing the public with the latest information. For example, Video the Vote plans to post up to 1,000 video reports of such problems according to a Reuters report on media coverage of the election. CNet reports that the Verified Voting Foundation and the Electronic Frontier Foundation have joined up to launch Our Vote Live, a project that will track election-related problems reported by voters. And the Twitter Vote Report will also collect and track in real-time reports of such problems from across the country, according to an NPR report. Now if I only didn't have to teach Election Law today - but at least it will be a small class, as I think half my students are serving as poll watchers, campaign legal team staff, or, in one case, as a candidate.

Even with today's election filling their pages, many newspapers have still found time to report on the difficulties various charities are facing because of current economic conditions. Articles highlighting increased demands for services, reduced contributions, and service cuts can be found just in the past day or so in the Boston Globe (requests for food assistance up sharply), the Dallas Morning News (shrinking donations for social service charities), the Kansas City Star (reduced donations and resulting reduced services), and the Star-Ledger (Newark) (reduced donations). Similar problems are also being reported in Canada, where the Globe and Mail (Toronto) has articles on both shrinking workplace charity drives and possible service cuts at universities because of declining endowments.

In Notice 2008-99, the Treasury Department and the IRS announced that they have become aware of transactions in which grantors for charitable remainder trusts use their trusts to avoid recognizing gain on appreciated assets contributed to the trusts. There are a number of apparent variations in the structures of these transactions, but the heart of each transaction is that the grantor either transfers appreciated assets to the trust (claiming a charitable contribution deduction for the full fair market value) or the trust already holds appreciated assets, then the trust sells those assets (not paying any tax on the gain as the trust is tax-exempt), and then the grantor and the beneficiary charity(ies) sell their interests in the trusts to one or more third parties. The end result is the grantor receives its share of the appreciated fair market value of the trust's assets without having to pay tax on the gain built-in to those assets. The Notice identifies such transactions as "transactions of interest," which requires that persons, including charities, entering into such transactions on or after November 2, 2006 must disclosure the transactions to the IRS. The Treasury and the IRS are waiting to see what these disclosures reveal before they determine whether to treat all or some such transactions as abusive.

We previously blogged about a federal court decision in Florida blocking enforcement of a state law that requires detailed public reports of expenses and donors for organizations that engage in any election-related activity. The opinion is now available. The most important holding is that the court reached a preliminary conclusion that any required disclosure tied to election-related speech could, constitutionally, only be linked to express advocacy (e.g., "vote for," "vote against," "support", "oppose," etc.) or its functional equivalent. The Florida law had a much broader sweep, requiring disclosure if an organization engaged in almost any election-related speech, whether express advocacy or not. At the federal level, this constitutional issue is still an open one, but the Supreme Court will almost certainly resolve it in the near future.

The Campaign Finance Institute issued a report that tax-exempt section 501(c) and section 527 groups that can collect soft money - i.e., funds not subject to federal limits on contributions - have already either collected or spent approximately $350 million on the election, placing them on course to top $400 million when all is said and done. This figure includes $185 million collected by 527s through October 15th, well below the $338 million raised by such groups in 2004 by this date but well above the $117 million they received during the entire 2006 election cycle. The remainder of the total amount is an estimated $165 million that it appears various section 501(c) organizations have spent on activities that appear to represent political campaign intervention under the federal tax rules. These groups are primarily either section 501(c)(4) social welfare organizations or section 501(c)(6) trade associations, and include both long-standing groups such as the NRA and the Planned Parenthood Action Fund as well as groups of more recent vintage and with more generic names, such as the American Future Fund and Health Care for Americans Now. Interestingly, the 527 groups appear to be more weighted toward the Democratic side while the 501(c)s trend more Republican, indicating that conservatives are gravitating more to the latter while liberals are sticking with the former, at least for now.

The IRS has announced that it is seeking applications for several spots on its Advisory Committee on Tax Exempt and Government Entities. The nine vacant positions include two relating to exempt organizations. Applications are due by December 1, 2008.

Last week GuideStar issued the results of its annual survey of nonprofit organizations, primarily charities, regarding changes in their levels of contributions and of demand for services as compared to the previous year. Comparing the first nine months of 2008 to the first nine months of 2007, over a third of the respondents said that contributions had decreased, the highest level since the October 2003 version of the survey. At the same time, a slightly higher number reported that contributions had increased but well below the almost 50 percent reporting an increase in the previous four years. The remaining respondents said contributions remained about the same or they did not know which way contributions had moved. As for demand for services, 64 percent reported increased demand, although this figure was down slightly from previous years. The survey also reported on changes in grantmaking by organizations that made grants. The over 2,700 participating nonprofits were from all areas of the country and represented a variety of sizes and missions.

The Chronicle of Philanthropy reports that a professor at Oklahoma State University has questioned the wisdom of the University's investment of over $200 million earmarked for football stadium renovations in a volatile hedge fund run by a major donor. The donor was T. Boone Pickens, who contributed $171 million of the original $202 million, and his hedge fund is energy-focused BP Capital. While Pickens has perhaps been most recently known for his bold proposals relating to America's energy use and production, his career has long focused on the oil and gas industry including as the leader of BP Capital's investment team.

The article describes the initial success of the investment, which doubled in approximately two years. During the past three months it fell dramatically, however, ultimately to a value of only $125 million. At this point the University cashed out to ensure it could complete the planned renovations. Pickens also contributed an additional $63 million last week, to provide additional financial support for the same project. The University's foundation also has a portion - less than five percent - of its almost half-a-billion dollars in assets invested in BP Capital. University officials strongly defended their investment decisions, including in a foundation press release that focused on Pickens' most recent gift.